State Farm Won't Handle Claims For Flood Insurance Program

State Farm Mutual has confirmed that it will stop administering federal flood insurance policies this fall, leaving government officials to find a new home for...

June 9, 2010

State Farm Mutual has confirmed that it will stop administering federal flood insurance policies this fall, leaving government officials to find a new home for 800,000 customers nationwide who bought their coverage through the company. State Farm is the nation's largest administrator of such policies written by the National Flood Insurance Program (NFIP).

According to FEMA spokeswoman Rachel Racusen, existing customers will not be affected by State Farm's decision. Both new and renewing customers will be able to obtain federal flood insurance through a State Farm agent "or one of the other 90 insurers that sell flood insurance through the National Flood Insurance Program" after the program is renewed.

"The news that State Farm announced it was pulling out of its Write Your Own (WYO) participation in the National Flood Insurance Program (NFIP) does not come as a total surprise," said Rita Hollada, past chairman and currently PIA National's representative to the Flood Insurance Producers National Committee (FIPNC). "The NFIP has become the victim of an increasingly political atmosphere in recent months and years. The repeated lapses in the program and its manipulation by Congress affect the certainty of the NFIP as a viable insurance program whose sole purpose is to protect and fund recovery for flood damage."

Hollada added, "Lenders, companies and insurance agents have become increasingly frustrated with the current Congressional attitude and tactics. Some Members argue for increased premiums and a requirement that the NFIP be fully self-funded while others want premium relief and broadened coverage for their constituents. Meanwhile the NFIP struggles to provide protection to policyholders while making interest payments on the deficit created by the claims paid as a result of Hurricane Katrina in 2005. State Farm's response may assist in getting Congress to recognize its obligations to support its WYO partners by keeping the National Flood Insurance Program accessible and adequately funded to achieve its stated purpose.

"Eliminating this work will allow us to focus our resources on the coverage we do write," said Phil Supple, a State Farm spokesman at the company's corporate headquarters in Bloomington, Illinois. Starting October 1, State Farm will begin dropping the flood policies as they come up for renewal, Supple said. Customers will be given 90 days notice that they will be redirected by FEMA to another servicing agent to handle their policies. Supple said premiums would not change. He added State Farm agents will handle reports of claims for policies where State Farm provides homeowner's coverage as well as writes flood policies. But claims will either be handled directly by the Federal Emergency Management Agency or its designee.